EU foreign policy chief Federica Mogherini made the announcement after a meeting with foreign ministers from Britain, France, Germany, Russia, China and Iran. She said the new payment channel would allow companies to preserve oil and other business deals with Iran.

“In practical terms this will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law and could be open to other partners in the world.”

The plan comes in response to Donald Trump’s decision to withdraw from the Iran nuclear deal. The EU, Russia and China, released a joint statement, saying the “Special Purpose Vehicle” will “assist and reassure economic operators pursuing legitimate business with Iran.” The statement also said the signatories to the Iran deal “reconfirmed their commitment to its full and effective implementation in good faith and in a constructive atmosphere.”

“If the Italians want to buy some Iranian oil, they will wire the money to this entity which will then handle the financial transactions from there and vice versa. There will be no involvement of commercial banks and central banks, both of whom are terrified at the prospect of US retribution if they are seen to be going against US sanctions.”

Lowry Institute for International Policy research fellow Rodger Shanahan called the plan “a poke in the eye for the US.”

We’ve been reporting on the growing efforts by countries like Russia and China to limit their dependence on the US dollar and set up alternative systems outside of the global dollar system, and the growing number of central banks that have been buying gold as a way to diversify their holdings away from the greenback. This move by the EU indicates that even traditional American allies have grown weary of the US using the dollar as a weapon.

Last month, the German foreign minister wrote that Europe should not allow the US to act “over our heads and at our expense.”

“For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent SWIFT system.”

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. The system enables financial institutions to send and receive information about financial transactions in a secure, standardized environment. Since the dollar is the world reserve currency, SWIFT facilitates the international dollar system.

SWIFT give the US a great deal of leverage over other countries. The US has used the system as a stick before. In 2014 and 2015, it blocked several Russian banks from SWIFT as relations between the two countries deteriorated. Last fall, the US threatened to lock China out of the dollar system if it didn’t follow UN sanctions on North Korea.

The creation of a Special Purpose Vehicle could lay the foundation for a more permanent alternative to SWIFT, and more broadly the US dollar. Some analysts believe Russia and China have been moving in this direction. The Russians have been dumping US Treasuries and buying gold. China has also been buying gold. Analysts believe the two countries are buying gold specifically to minimize their dependence on the US dollar and possibly to create a foundation for an alternate payment system.

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